CSX Reports Earnings In Line; Revenue Disappoints

CSX Corp. (NYSE: CSX – $53.39) announced third quarter 2017 net earnings of $459 million up from $455 million, in the same period last year. Excluding a $1 million restructuring charge in this year’s results, the east-coast rail’s adjusted earnings per share settled at $0.51 vs. $.048 a year ago and in line with consensus. Revenue increased 1% to $2.74 billion, compared with the Street estimates of $2.78 billion. The company said it expects 2017 adjusted earnings per share to rise 20% to 25% from 2016’s $1.81, while the consensus of $2.22 implies growth of 22.7%. On the post-earnings conference call with analysts, Chief Executive H. Hunter Harrison said “several markets continue to be impacted by specific headwinds,most notably the anticipated decline in North America light vehicle production, the evaporation of unit train shipments of crude oil and the secular challenges of domestic utilities”.

Long-term success will depend on the company’s ability to grow its intermodal franchise. Management is on record saying that it should continue to grow the business by 5%-10% a year, largely thanks to its ability to poach volume from truckers. Tighter on-highway capacity should also help in that regard as well as more compelling service offerings. That said, the company recently conceded that steam coal volumes are likely to continue to decline, as power plants increasingly turn to cleaner-burning natural gas. The shares are not cheap at current levels, but I am holding on to the position for now.